By Liliana Salazar, Esq., Chief Compliance Officer, Western Region, HUB International
As the Patient Protection and Affordable Care Act (‘ACA’) celebrates its eighth year of enactment, what new challenges will law firms face under the ACA in 2018?
In 2018, firms in both the small group (less than 50 employees in most states, or less than 100 employees in CA, CO, CT, NY, and VT) and the large group markets should anticipate an increase to their health insurance premiums ranging from single-digits to low double-digits. Part of the increase is attributed to the health insurance tax (“HIT”) tax, which will be reintroduced for all insured plans renewing in 2018. The HIT tax will result in an increase in premiums ranging from 1% to 3.5%, depending on the insurance carrier’s market share. Other factors influencing healthcare insurance trends include: rising pharmacy costs; consolidation in the number of insurance carriers, pharmacies, and provider networks available regionally and nationwide; and, uncertainty as to the viability of the ACA and its mandates. Although increases in group insurance premiums are not expected to vary greatly from 2017, employers will still struggle in 2018 with the rising cost of health insurance. According to the Kaiser Family Foundation 2017 Employer Health Benefits Survey, the average family premium has increased 55% since 2007 and 19% since 2012*.
In 2018, firms that are Applicable Large Employers (‘ALEs’) – defined as employers with 50 full-time (FT) and full-time equivalent (FTE) employees – will face new challenges under the Employer Shared Responsibility Provision (‘ESRP’), or “Play-or-Pay Mandate” of the ACA. Under the ESRP,ALEs are required to: 1) offer minimum essential coverage to 95% of their full-time employees; 2) offer coverage that is minimum value (60% actuarial value); and, 3) offer coverage that is affordable under one of the three IRS’ affordability safe harbors (rate of pay, box 1 of the W-2, or 100% of the Federal Poverty Level).
For the first time since 2014, the affordability safe harbor (the amount an employee is required to pay for employee-only coverage for the lowest cost plan that is minimum value) will decrease from 9.69% (2017) to 9.56% (2018). This reduction in the affordability safe harbor may require employers to increase their contribution towards employee-only coverage if they want their plan(s) to be affordable in 2018. For example, in 2017, an employer that used the rate of pay safe harbor to assess affordability of coverage could require an employee making $12 an hour to pay $151.16 per month ($12 times 130 times 9.69%) for employee-only coverage for the lowest cost plan that was minimum value. However, in 2018, that same employee earning $12 per hour cannot be asked to pay more than $149.13 ($12 times 130 times 9.56%) per month. As the ACA does not rely on the percentage of premium an employer pays in assessing the affordability of coverage, employers will face two increases in 2018: one predicated on their medical plan’s renewal trend increase, and the second based on a decrease in the affordability safe harbor.
Lastly, firms that are ALEs must be prepared to respond to IRS Letter 226J. Letter 226J notifies an ALE that a penalty may be assessed against them by the IRS for violation of the ESRP (IRC §4980H(a) or IRC §4980H(b)). The IRS commenced enforcement action of the ESRP for the 2015 calendar year in November 2017. A Letter 226J is issued if one or more of the ALE’s full-time employees received a premium tax credit when they purchased insurance coverage from the marketplace or state exchange. Employers that are ALEs should carefully review their Forms 1094-C and 1095-C to identify filing errors that may trigger the issuance of Letter 226J, as well as ensure that they have retained records of the type of coverage that was offered to employees, employees’ elections (including waivers) and the cost of coverage.
In 2018, firms should evaluate alternative plan designs and contributions that will allow them to remain competitive, while providing a valuable benefits program to employees and partners. The ACA will continue to create challenges and opportunities for firms and their employees, especially as the Trump Administration and Congress attempt to unravel some of the less popular provisions of the ACA.
*The Kaiser Family Foundation and Health Research & Educational Trust 2017 Employer Health Benefits Annual Survey, page 4.
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Vice President | Professional Liability Practice Leader
Senior Vice President | Professional Liability Practice Leader